Real Estate Broker · Doral, FL · Member since 2016 · 62 posts · 11 votes
Hi BP community!
I have a rental property that has been paid in full and I want to try the BRRRR strategy.. Please let me know if you think this is a good strategy for my situation.
I bought this property for 40k a couple of years ago. The current market value of the property is between 90-100k. I want to refinance this property and take out the money to buy another rental property (or at least put a good down payment for one or two). Current rent is $1250 (2/2)
1. Have you done the BRRRR strategy in South Florida?
2. Do you have lenders that are familiar with the strategy here?
3. Can I refinance my property if it is under an LLC?
Brian Mathews In 07 our area was booming and there was a general contractor on every corner, 08 came and they started dropping like flys. The gc I used was old and wise and lived within his means, however he told me that 15 of his leveraged friends went under and had to file. things are booming again and I'm getting stupid prices when I sale, heck I just saw a person post on the forum about needing a general contractor in Helena Ar!!! The person is an investor from New York!! I live in Arkansas and wouldn't invest in Helena!! Stupid investing is accelerating us toward the next crash. Taxes don't cause a foreclosure, they result in a tax lien, which can cause you to lose it in an auction at the courthouse, but I'm sure you know that :)
You can pull money out...and it is TAX free! Use it to build your portfolio. Check with you local bank to see if they can help. I have never tried to pull cash from an LLC owned property and think there are a few more hurdles to jump. You have a good strategy in mind. Good luck.
Alexis Guini I am not fond of the brrrr strategy, I believe that it is a form of kicking the can down the road and as Warren Buffett says, "when the tide goes out, you'll find out who's been skinny dipping". I'm s successful investor and have several properties paid off and a few mortgages. I worry about the ones I have debt on. I believe the brrrr strategy will cause a lot of people to go bankrupt and if you remain debt free, you'll be in line at the courthouse to purchase :) I can get a loan without refinancing my current properties and you can too.
Alexis Guini I'm a slow grow guy. 100% of for closures happen on properties with mortgages :)
Dave Ramsey. While I do agree with him on a lot of things, such as not generating debt on rentals, have them paid off. I have a friend that doesn't have many mortgages. He has 42 doors, 30 of them paid off and makes more than most that preach about borrowing and borrowing. I think he generates around $75K a month in rents. You can get foreclosed on by not paying taxes as well even if paid for.
Brian is exactly right, especially with the coming real estate crisis that is supposed to happen. If it does NOT have any debt on a income producing property will help you weather the storm. I know of many "Millionaires" (on paper) that lost it all in the last recession because they had TOOOOO MUCH DEBT on their properties.
Brian Mathews In 07 our area was booming and there was a general contractor on every corner, 08 came and they started dropping like flys. The gc I used was old and wise and lived within his means, however he told me that 15 of his leveraged friends went under and had to file. things are booming again and I'm getting stupid prices when I sale, heck I just saw a person post on the forum about needing a general contractor in Helena Ar!!! The person is an investor from New York!! I live in Arkansas and wouldn't invest in Helena!! Stupid investing is accelerating us toward the next crash. Taxes don't cause a foreclosure, they result in a tax lien, which can cause you to lose it in an auction at the courthouse, but I'm sure you know that :)
I am in precisely the same situation as you. I have 4 rentals paid in full in South Florida, and am considering refinancing one to purchase another. This is how I am approaching the issue personally:
The unit I want to refinance is very similar to yours, worth about 130k and rents for $1375/m. Most traditional lenders will allow you to pull out 70-75% of the appraised value. For us, this will result in roughly $85k in cash after costs of the refinance (according to loan estimate that I recently acquired for my unit).
Rather than use that toward a down payment, I plan to use some cash I have saved to purchase a similarly valued unit (around $100k) in cash, that way I will only have one payment, as opposed to two. Also, you can make a stronger offer if you are using cash. In my area, and given the units that I have been considering, this would result in about $100/m additional cash flow after debt service, and assuming 8% vacancy, conservative estimates for taxes and maintenance. I know it isn't a significant amount by many standards, but it will allow you to increase your portfolio and leverage what you have to build equity.
Many people here have advised against leveraging your equity, and I respectfully disagree. Even if the market tanks, which I don't profess to have the expertise to predict, I think you should be fine so long as the rental income you collect can help you weather the storm through the recovery period. It would not be wise to leverage in any situation, in my opinion, without adequate reserves for the unexpected, however. I am sure it wouldn't prove very difficult to find investors that were hit hard in 2008, but kept their units rented and are glad they didn't file now in 2016. We are not talking about taking on a huge amount of debt here, it is one unit, and you are capped @ 70% of appraised value. If done responsibly (budget realistically and hold reserves), I see no reason why you can't double your portfolio.